Why this bitcoin bull market is different to 2017

In 2017, the global money printers hadn’t gone into overdrive.
Image: Supplied

In December 2017, bitcoin hit a new all-time high of $20 000, having started the year at $950 – a 2 000% return for the year. A year later in December 2018, it was back to $3 500 and looked for all intents and purposes to be another speculative bubble for the economic textbooks.

‘The bitcoin bubble has popped’ screamed headlines across the world. In fact, since 2010, bitcoin has been declared worthless over 411 times by major media news outlets. Yet for all its divisiveness, bitcoin has clocked a 210% compound annual growth for the last decade, making it the best performing asset over this period and the fastest asset ever to reach a $1 trillion market value. It did this in less than 12 years, where it took Microsoft 44 years to hit the $1 trillion market cap.

Source: Revix

What’s different this time?

Bitcoin recently broke through $63 000 in April 2021 and some believed it was time for a serious price correction. The price of bitcoin did pull back, but it didn’t quite play out like it did in previous bull cycles.

“There is something fundamentally and structurally different about the latest crypto bull run,” says Revix founder and CEO Sean Sanders. “Firstly, there’s a good case to be made that we’re not at the tail end of a bull market, but somewhere in the middle as we’re not seeing the kind of volatility that we have traditionally seen after a powerful move up in price. This is largely due to the rate of institutional adoption that is taking place. I would say we are at the early stages of institutional adoption, and this trend will almost certainly accelerate.”

Companies like MicroStrategy, Tesla, Stone Ridge and Square have led from the front by converting some of their US dollar Treasury reserves into bitcoin as a way to hedge against expected deflation and depreciation in the value of the US dollar.

“In 2017, it was everyday people – known as retail investors – who were the driving force behind the price of bitcoin. And while they’re still a powerful factor in the current bull run, the arrival of large-scale institutional investors has been the game-changer for bitcoin,” says Sanders.

“Just two years ago, I was laughed at when I spoke about corporations buying bitcoin. Now it’s happening with $1 billion-plus purchases. Is it really that crazy to imagine a third world country adopting a cryptocurrency as their primary means of an exchange over their depreciated local currency? Or central banks adding bitcoin to their balance sheets just like they do with gold? I don’t think so and I believe this is where we’re headed.”

Weak employment numbers out of the US last week – with 266 000 new jobs created in April, well below the expected one million – reignited the bitcoin furnace and pushed its price to $59 000 from an April low of $48 000. The same worrying jobs report also put a fire under the prices of gold and silver. Inflation-hedge assets, or assets that can protect wealth when there’s inflation and benefit from low-interest rates, were firmly back in vogue.

There’s another key factor driving the bitcoin price: a supply shortage. bitcoin miners are hoarding a higher percentage of newly-minted coins, while institutions are buying up an increasing percentage of available supply. In the past 30 days, around 270 000 bitcoin (roughly $15.3 billion) moved to entities considered long-term investors or ‘HODLers’. This effectively removes the coins from circulation.

Dollar abundance

The backstory to all this is the US government determined to increase the quantity of money in the economy by whatever quantity deemed necessary to trade its way out of the Covid-induced crisis. Bitcoin’s attraction as a store of value lies in its hard cap of 21 million coins that cannot be inflated beyond this level.

Source: Revix

Says Sanders: “I don’t think people fully grasp how much money was printed in the last 12 months. If you take a look at the graph above, you’ll better understand what I’m referring to. Trillions of US dollars have been added to the global money supply – to be specific, 18% of all money in circulation was printed in the last 12 months. To say this is unprecedented understates how hard the money printers have been working, and in fact, it would actually have been impossible to physically print the amount of money equal to the credit issued by the US central bank alone.

“In addition to the extra cash in the system, the budget deficit (or government’s debt) has ballooned to all-time-highs in nearly every major economy. So you just know that these factors will have a big impact on the price of things — stocks, real estate, gold, cryptocurrency relative to the price of money over the long term. Assets are going to become more expensive and each USD is going to become worthless, or worthless depending on who you speak to, over the long term. So, is inflation coming next year or next decade? That’s the trillion dollar question. I expect the price of bitcoin could set a new record in the next 24 months. It’s definitely not going to happen overnight, but it’s going to happen.”

Valuing bitcoin

Measuring bitcoin’s stock-to-flow ratio (the number of newly-mined coins being added yearly to the total coins in circulation of 18.8 million has proven useful in measuring and predicting bitcoin’s price. The rate at which bitcoin is mined is halved every four years, and this event has historically been followed by a rise in prices. The last halving event was in May 2020. An analysis of stock-to-flow and the impact on price of bitcoin halvings suggests a target price of $115 000 before the end of 2021, according to Pantera Capital.

Whereas large investment banks were dismissive of cryptos three years ago, many are now paying serious attention to this new asset class.

Morgan Stanley’s Ruchir Sharma, head of emerging markets and chief global strategist, recently analysed the role of the US dollar as an international reserve currency and compared it to five other great powers that previously enjoyed the coveted “reserve status”, going back to the 1400s: Portugal, then Spain, the Netherlands, France and Britain. “Those reigns lasted 94 years on average. At the start of 2020, the dollar’s run had endured 100 years, which was reason enough to question how much longer it could continue….”

Sharma points out that the money printing in 2020 was a huge boost to bitcoin. Bitcoin’s $1 trillion market cap is still tiny next to gold’s $11 trillion, leaving plenty of room for it to grow.

But one irresistible practical emerging market application for cryptocurrency is the $470 billion market for remittances. These transfers typically take one to five days, with fees ranging from 5 to 9%. “Today, a payment system using cryptocurrency can send the same sum in seconds, for pennies,” says Sharma.

“We are still at the very early stages of the bitcoin and crypto evolution,” says Sanders. “This is as exciting as it was in the mid-1990s in the early days of the internet. There will be winners and losers, and – while it’s impossible to tell who they will be, and investors should expect a very volatile ride – the best way to participate in this space is by gaining a broader exposure to the crypto universe by investing in a crypto ‘bundle’ that spreads your investment across the top performing cryptos.”

Owning a basket of the top 10 cryptocurrencies, which currently accounts for 81% of the total cryptocurrency market capitalisation, is an easy, secure and smart way to invest over the long term in this asset class. Revix’s Top 10 Bundle is like the JSE Top 40 or S&P 500 for crypto and has outperformed an investment in bitcoin alone over a one-, three- and five-year time period.

“Buying bitcoin is great. But you know what’s better? Buying bitcoin and owning the next bitcoin. Smart investors know that being early is critical to success, and investing in cutting-edge crypto assets before they hit mainstream media headlines has been a winning strategy,” says Sanders.

Source: Revix

“With our ready-made crypto ‘bundle’ you own an equally-weighted basket of the world’s largest and by default most successful cryptocurrencies. You don’t have to try to guess which up-and-coming cryptocurrencies will become the next bitcoin since you’ll own a diversified basket of cryptos that gets automatically updated every month based on how the crypto market has performed. Diversification works in every asset class in the world. It should come as no surprise that it works in crypto as well,” adds Sanders.

For more information about crypto bundles, or a direct way to invest in bitcoin or the Ethereum cryptocurrency ether, visit Revix.

Brought to you by Revix.

Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform.

Revix brings simplicity, trust and great customer service to investing. Their easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks. Revix guides new clients through the sign-up process to their first deposit and first investment. Once set up, most customers manage their own portfolio but can access support from the Revix team at any time.

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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